William Watson: Suddenly Canada and the U.S. have switched places on NAFTA

Maybe it’s only when you stand a real chance of losing something valuable that you come to appreciate its benefits

Foreign Affairs Minister Chrystia Freeland delivers her statement to the media as United States Trade Representative Robert Lighthizer looks on during the sixth round of negotiations for a new North American Free Trade Agreement in Montreal, Monday, January 29, 2018.Graham Hughes/The Canadian Press

Now that the U.S. International Trade Commission has ruled Boeing wasn’t actually hurt by Canadian government assistance to Bombardier, that officially leaves Canadian taxpayers as its only victims. Yes, most Canadians asked to comment on the decision indicated various degrees of delight, extending even to “snark,” The New York Times reported. But, as usual, most Canadians whose opinions were sought worked for Bombardier or the governments that have been so generous to it, so their delight is understandable. Average Canadian taxpayers weren’t asked how happy they were contributing the $114.28 that every family of four pays for every billion-dollar corporate subsidy.

Exactly who the winners and losers are is also strangely scrambled when it comes to investor-state dispute settlement, one of the big sticking points in the NAFTA negotiations. ISDS (not to be confused with ISIS, though some anti-trade activists paint them as almost equally evil) was put in the original NAFTA at the request, some say insistence, of big U.S. companies — the dreaded multinationals — who feared expropriation at the hands of the Mexican government.

Who benefits from ISDS? Labour unions and others on the left have long decried the “special rights” that allow companies to complain to “secret tribunals” — though proceedings are now more open than they were. That’s true. Companies do benefit. Otherwise they wouldn’t have asked for ISDS. But what’s the effect of their benefiting? It’s that they’re more likely to invest in countries that offer such protections. And which countries are those? Canada and Mexico.

Why does the U.S. want to dump ISDS, which was its own invention?

The U.S. benefits too, of course, since Canadian and Mexican companies will be more likely to invest in the U.S. if they know their property rights can be enforced more quickly and completely via “Chapter 11,” as it’s known, than through the courts. Americans probably discount these benefits, however. Canadian and Mexican investment isn’t as important to their economy as American investment is to Canada’s and Mexico’s. And the U.S. is already famous, not least to itself, as the world’s pre-eminent guardian of property rights.

Except that it isn’t, at least not as much as it used to be. In particular, court-backed use of eminent domain and aggressive civil divestiture (seizing citizens’ property in criminal cases) are two reasons it has slipped to 11th on the Fraser Institute’s “economic freedom of the world” index — tied with us, in fact. (Mexico is 76th. On property rights we actually out-score the Americans, 7.9 to 7.2 out of 10.)

So why does the U.S. want to dump ISDS, which was its own invention? Is it that what’s good for General Motors isn’t good for America any more? Have Americans figured out that the benefits U.S. companies may get from ISDS don’t necessarily accrue to anybody but shareholders? Or is it part of draining the swamp, a populist Trumpian attempt to make the U.S. government less beholden to corporate interests?

The recent tax bill still seemed pretty sensitive to corporate interests, most of all by cutting the corporate tax rate by 14 percentage points. There’s plenty of economic evidence that workers pay the corporate tax, too, so cutting it helps them, as well. But the public generally sees the tax cut as a benefit to business. And the Americans’ demands regarding NAFTA rules in the auto sector certainly seem very driven by General Motors and the other U.S. producers. David Frum’s new book says one of Donald Trump’s main aims as president is to make as much money as possible, which presumably makes him pretty pro-corporation, if mainly pro Trump, Inc. What’s good for Trump, Inc… etc.

Mind you, Canada’s turnaround on Chapter 11 is also a little peculiar. For much of the provision’s life its Canadian defenders, mainly Conservatives, have been very defensive. It was explained as part of the deal the Americans forced on us but since the deal was good overall it was a price worth paying. On the left, it has always been anathema, as everything corporate is. But now, even though the Liberals are leaning so far left they’re about to fall over, they’re Chapter 11’s main defenders. Maybe it’s only when you stand a real chance of losing something valuable that you come to appreciate its benefits. Or at least, whether your appreciation is new or not, that you’re forced to fess up and step up for what you want.

Another 180-degree revolution in the trade talks concerns Congress, which in the old days was always the bad cop. Administrations would push the envelope on their demands by swearing their proposals were the very least an obstreperous Congress would accept. But now we’ve got apostate Liberals saving satanic Chapter 11 by finessing a mad-dog administration and working with a responsible, statesmanlike Congress.